Monday, 17 October 2011

China books its insurance

Love this very small article, it is in the Sunday Times so not accessible without paying, but here is a snippet. As expected, even predicted, here is China supposedly making its move.

They want to know how much the damage is understandably, but also rather clearly want to get hold of some decent collateral in return. Interestingly they are choosing infrastructure assets.

Again, if you think of their position they want to control country's and owning the infrastructure assets will be a good way to start. In addition, if you were worried into thinking that fiat currencies are going to lead to a hyperinflation event in the West at some point, then you need to control things that will hold their value as money evaporates - here, infrastructure assets will do the trick. It's a good form of insurance.

In the meantime, the Chinese are also going to do this to keep their policy going of supporting the Euro going to help keep the Yuan undervalued - this is the key driver to them keeping their mercantilist policy going. if the Euro was to rapidly deteriorate in terms of value the Chinese economy would soon follow.

All in all, this is a good sign of the macro-economic challenges on their way towards us. Careful management of your own assets is going to be needed in the years ahead.

15 comments:

Budgie
said...

Let me get this straight. China undermines manufacturing in the West by its mercantilist policy. This leads to Western economies being less robust and more dependent on their finance sectors. The inevitable bust happens in the West. China then loans money to the USA and acquires infrastructure in Europe.

Why do we let this happen (especially as the UK has only just stopped giving cash aid to China)? It can't be that the UK establishment's view is that johnny foreigner has a duty to look after us; and that thinking strategically for the good of the UK is anathema, can it?

Natural resources are the key, as we are bound to lose the technological race although we still have to swim to keep up. So would did we do? Oh yes, pump out all our North Sea oil. Production peaked in 2006. Labour had, and never will have, self control.

If the Chinese want to buy railways let 'em, nobody has ever made money of of the bloody things. If the Chinese then start running a country's infrastructure down they are being rather short-sighted and there is nothing to say that once these countries have got their houses back in order they can't buy the stuff back.

The Chinese have made lots and lots of paper money out of the West's borrowing binge but paper money in a vault in Beijing can quickly become worthless if the ECB monetises or Europe sinks into a depression.

Are we convinced this is really happening? Last I heard the Chinese had been approached by the EU but had rejected deeper involvement, on the understanding that if EU governments like Germany find Greek debt too hot to handle when they have some skin in the game, why would the Chinese be any better off? The Chinese would be more or less asking for the debt to turn bad with the EU sticking two fingers up to them when it did - what could the Chinese do about it?

The Chinese would certainly expect the EU to offer collateral for these debts (as Finland did recently), but the EU itself has no collateral to offer. So basically the Chinese are offering to buy Greek debt in return for collateral but the Greek government are not in the talks so why are the Chinese bothering with such an offer at the G20? Seems to me that the Chinese are laying out their terms knowing full well they won't be taken up, presumably as the finger is now being pointed to the Chinese as being the other half of the equation with regard to the way Western debt built up in the first place. It's a negotiating position aimed at deflecting criticism of China which has no intention of buying Greek debt - it has too many problems of its own at present.

"Running down a country's infrastructure" or even threatening to do so.

The railways may not make money but try to picture our roads without them.

The fact is that the Chinese now have a much bigger stake in us than we should ever have allowed.

The level of control this will give them is what it is all about.

The money ? This represents the blood and sweat of peasants which they don't care much about anyway.

So for that they can bring our transport system to a grinding halt. Not that they will but that they can.

Can you now see what I meant when I said that they will 'own' us ?

Then there is their aquisition of our infrastructure in the literal sense. Using the markets (Pikeys and dodgy scrap dealers in other words) to transfer our railways bit by bit in the form of cable theft and then sell it back to us at inflated prices.

No EK I still don't know what you mean by the Chinese owning us or controlling us.

I don't know why so many people are so scared stiff of the Chinese. They are playing catch-up and there is no reason to believe that they will somehow take over the world.

The fact that lots of railways employees profit handsomely from the railways is exactly why nobody can ever profit from owning them! Something like 50% of the UK railways' income comes from the taxpayer...

Greek railway employees earn HUGE amounts, which is why I can't see why anyone would want to invest money there.

1) The new president of the ECB – Mario Draghi – he will be president up until 2019. He will be the key driver behind any changes and understanding him is key. Draghi was director at Goldmans in 2002 (after the controversal Greek swap was dealt). (words left out-ed) There are serious questions over his tenure for this reason. But here we go again another ex- Goldmans director. Remember Paulson doing his stuff at the FED after the collapse in the credit markets. YOU CAN BE SURE the solution will be a banking solution to the crisis and not primarily a fiscal one. Debt is good, debt is control.

2) Rumours in the market are that he WILL find the money – and he will find it from China. The market is saying that he will use some financial engineering to “swap” EU sovereigntity (and I mean EU not national control) for the bail out funds and at the same time allow the EU to achieve their goal of further integration. The rumour I hear is that a massive EU bond issue will be put out to the markets (i.e. China) it will have lots of controls over budgets in the EU in it. In return the ECB will be a proxy for Chinese (sorry bond holder controls) to push further integration. The theory is that China wants further integration from the EU so that the EU can destablise the US as a global power.

Goldmans has been moving East for the past few years – for example it is not the largest owner of the London Metal Exchange and has quadrupled ownership in the past few years – the Hong Kong Bourses have expressed a very recent desire to take over the LME – remember China is the metals consumer of the world. Goldmans has been moving its trading books east and in its accounts reports increasingly from Hong Kong.